Today’s Blog – Monday 22nd June 2015

Your blogster is heading off to a FSU country next week (he will try to maintain normal blogging services on most days).

In the global oil and gas industry there are quite a few developments in Russia at present, with material implications for international gas markets in particular. The blog this week will examine some of these.

Starting on the Western side of the massive Eurasian continent, last Friday saw more cosying up between Russia and Greece. The two countries signed a non-binding MOU over the Turk Stream gas pipeline project. Like many international pipeline projects, Turk Stream is arguably a geo-political rather than economic construct.

In my view, planning to ship gas to Greece – with a hope that further pipelines will then be constructed transiting multiple Balkan nations before that gas gets to large markets like Germany, is somewhat optimistic.

However, no doubt Greece hopes that the threat of bringing Russian influence into Europe’s “soft under-belly” could be useful in the current negotiations over its massive debts.

Commodity prices

Crude closed slightly down on Friday, with Brent at US$63.02 and WTI at US$59.61. In the absence of either US data or geopolitical “events” on any particular day, then movements in the USD are currently the primary driver in daily oil price movements.

The BHI rig count on Friday saw a small drop of 2 rigs (bringing the total since last year’s peak down by more than 1,000 now – 1,001 rigs). The market will closely watch the rig count for a bottom in the next few weeks.

Last week some commentary came out from a few respectable sources about the extent of spare production capacity currently held by Saudi Arabia. The KSA’s Oil Minister, al-Naimi, said on Thursday this was around 1.5 to 2 million barrels per day. In my view this is quite a bit less than many had assumed in recent years – which could have implications for global oil market stability if a really big “event” occurred in the Middle East.

Governments and fracking

Bloomberg reported on Friday on further news that indicate that oil-field waste-water disposal, rather than fracking, appears to be the primary cause of enhanced seismic activity in States such as Oklahoma.

Stanford Professor of Geophysics, Mark Zoback, summarised the issue well as follows:

“The water flows very easily, spreads out, penetrates basement faults and triggers seismicity. When you’re hydraulically fracturing you’re only pressurizing a limited volume of rock for a relatively short period of time. A typical frack stage lasts a couple hours, whereas injection can go on for years or even decades.”

Company news – NuEnergy Gas Ltd (NGY)

Its a thin day for ASX reporting by oil and gas companies so far this morning. A rare exception is news from micro-cap NGY, a company focused on CBM exploration in Indonesia, who today announced the spudding of a well in Central Sumatra.

NGY recently picked up the whole of Dart Energy’s Indonesian CBM asset portfolio for US$1M – a fraction of what analysts would have valued it at in years gone by. CBM exploration in Indonesia to date has not been easy – witness STO’s write-off of its entire investment in this area in the last year or so. However, SNY now seem to have a locally focused team who are better placed than ex-pats to manage the “complexities” of on-shore oil and gas exploration in the archipelago nation.

Quote of the day

As noted above, a view is emerging that Saudi Arabia is closer to producing at full capacity than previously generally recognised, including from the investment banking community:

“If you are Saudi Arabia and you’re looking at the new oil order we live in, you would go to full capacity,” Jeff Currie, head of commodities research at Goldman Sachs in New York, said by e-mail on June 15. “The world has come around to the realization that the U.S. shale barrel is the swing barrel.”